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European Commissioner for Competition
E.ON and GDF gas market sharing, GDF commitments, Pharmaceutical Sector Inquiry Final Report
Brussels, 8th July 2009
Today I have three announcements to make. The first two concern individual antitrust cases in the energy sector, which follow the energy sector inquiry, and the third concerns the adoption of the final report on the Commission's pharmaceutical sector inquiry.
I turn first to the case of GDF Suez, which has offered commitments to remedy concerns about a possible abuse of its dominant position in the French gas sector. These concerns, over blocking access for competitors to the infrastructure needed to import gas into France, are currently the subject of a Commission antitrust investigation launched in the wake of the energy sector inquiry.
We are now going to test reactions from interested parties to these commitments.
The proposed commitments involve GDF Suez immediately releasing a large share of its long-term reservations of gas import capacity into France. That release would continue until GDF's share is below 50%. This improved access to infrastructure for GDF's competitors is essential for effective competition. I am talking in particular about access to LNG terminals and pipelines.
Once we have assessed reactions from competitors, consumers and other interested parties to the GDF commitments, the Commission may make them legally binding.
The great advantage for French gas consumers if these commitments do indeed prove to be sufficient to meet our competition concerns, is that it would be easier for potential competitors to enter the French gas market. This would contribute to delivering the benefits of the Single Market to French energy consumers in terms of greater choice of gas supplier and more competition on prices.
In a wholly separate case, the Commission has today decided to impose substantial fines of € 553 million each on E.ON and GDF Suez– a total of €1.106 billion – for market sharing in the French and German gas markets. These are the first Commission fines imposed for an antitrust infringement in the energy sector and send a strong signal to energy incumbents that the Commission will not tolerate any form of anticompetitive behaviour.
The problem stems from an agreement made in 1975 between the companies then known as Ruhrgas AG and Gaz de France. The companies jointly built the MEGAL pipeline across Germany to import Russian gas into Germany and France. They also exchanged two secret letters agreeing not to sell their shares of the gas into each other's home market.
The specific action leading to today's fine was the continuation of this agreement after liberalisation of Europe's gas markets in 2000. Despite the legally-binding decision by Europe's governments to open up the gas market to competition, these companies continued to apply their market-sharing agreement until September 2005, even after publicly declaring the original agreement "null and void" in August 2004.
These actions denied French and German gas consumers the benefits of competition for many years. Throughout these years, consumers in two of Europe's largest gas markets paid more, while the companies profited at their expense.
This is very serious; market-sharing is one of the worst types of antitrust infringement. By agreeing not to compete, these companies effectively eliminated price competition in this important sector.
This was exploitation of consumers by companies that were already in a privileged and profitable position. The Commission has had no alternative but to impose high fines.
Now, moving to pharmaceuticals, the Commission has today delivered its final report into competition in this key sector. Clearly, the proper functioning of competition in the pharmaceuticals sector is crucial to all of us as both patients and taxpayers in terms of prices and in terms of access to innovative products.
Unfortunately, the report confirms that there are competition problems in the pharma sector and that company practices are a significant factor behind them. In particular, the report concludes that makers of original medicines are actively trying to delay the entry of generic medicines onto their markets.
The Commission is aware of at least 200 settlement agreements between generic and originator companies. A good number of them restrict entry onto the market of generics. These settlements cause prices for consumers and for taxpayers to remain substantially higher than if competition existed.
Generic products are on average 40% cheaper two years after market entry compared to the originator drugs. In other words, generics are an effective way to contain the costs of an aging population and to tackle budgetary restrictions.
On the basis of a sample of medicines that faced loss of exclusivity in the period 2000 to 2007 in 17 Member States, the inquiry found that customers waited more than seven months after patent expiry for cheaper generic medicines, costing them an absolute minimum of 3 billion euros or 20% in extra spending.
If we included all off-patent drugs, or those that have never faced a generic competitor, the true cost of delayed generic entry would be much more.
Competition cases and scrutiny
Where delays to market entry of generics result from anticompetitive practices, the Commission will not hesitate to apply the antitrust rules. In this context, I can today announce that following inspections carried out in November 2008, our first case is now open. It is against Les Laboratoires Servier and several generics companies. It concerns suspected breaches of the EC Treaty's rules on both restrictive business practices (Article 81) and abuse of a dominant market position (Article 82).
The case will look at the agreements between Servier and a number of generic companies. These agreements affected the entry of generic competitors against perindopril, a leading drug that combats heart-disease and high blood pressure.
The generic companies who are party to the agreements include:
• Niche Generics Limited and
Pricing and reimbursement
The Commission is also asking Member States to consider policies that ensure rapid generic uptake and/or generic competition.
We also want generic products to automatically or immediately receive pricing and reimbursement status if the corresponding originator drugs benefit from it.
In terms of patent regulation it is very clear that two things are needed rapidly in order to facilitate the market entry of new, original drugs:
At the moment 30% of national patent-related court cases are parallel cases. And national courts reach conflicting conclusions in 11% of all cases. This is a waste of everyone's time and money.
Market authorisation is also an issue. The report confirms the misuse of national market authorisation processes to delay generic drug entry and the existence of misleading campaigns to discredit generic drugs. The Commission calls on Member States to address this problem within their national health systems.
Finally I wish to say that – as with all sector inquiries - the publication of the final report is just the beginning of our work. With the help of the insights gained from the sector inquiry, the Commission will now step up its antitrust enforcement and work with Member States to improve the regulatory framework and procedures for pricing and reimbursement and market authorisation.